The Polish government's boatload of problems

By bne IntelliNews September 17, 2009

Jan Cienski in Warsaw -

Poland's two listing shipyards have already shed thousands of employees, but as Szczecin and Gdynia are put back on the block in an another attempted sale, they are endangering one more high-profile job, that of Treasury Minister Aleksander Grad.

Grad is responsible for finding a buyer for the remnants of the shipyards in Szczecin and Gdynia, and the sale of the main assets of both yards has turned into an embarrassing stumble, with mysterious buyers abandoning the process, leaving the country scrambling to find a new purchaser.

The yards were put on the block after the European Commission ruled late last year that the yards had received illegal state aid and production guarantees amounting to almost €2bn. Because neither loss-making yard was able to repay the money, the Commission found that they had to be broken up and sold at auction to the highest bidder.

The auctions were resolved this spring, and many of the smaller pieces of the yards were sold without incident. However, the cores of both operations were kept more or less whole in the hope that the new owner would continue to produce ships there.

That tender was won in May by Stichting Particulier Fonds Greenrights, based in the Netherlands Dutch Antilles and representing a buyer reported to be from Qatar, after it agreed to pay PLN380m (€90m) for the yards' assets. However, after paying a deposit, the rest of the money did not flow into government coffers. Grad, who had trumpeted his success in selling the yards, was even threatened with dismissal by Donald Tusk, Poland's prime minister. In the end, Tusk decided not to sack Grad, but the issue continues to dog one of the government's most powerful ministers.

Complicating the issue was an appeal sent by a group of former shareholders of the Szczecin yard to Greenrights, warning that the government had made legal errors in selling the yard. On September 9, the Commission agreed to give Poland more time to sell the two yards, which means that their assets will likely be back at auction in the next few weeks. "I think we lost the previous procedure mainly because the time was too short," Grad said. "Now the European Commission is giving us more of it."

Historical baggage

The fate of the shipyards is more than a business story in Poland, where the memory that the yards played in ending communist rule is still strong. The Gdansk shipyard, the cradle of the Solidarity labour union, is shrunken, but still functioning after having been sold to Ukrainian steel conglomerate ISD in 2007. The Commission has accepted a restructuring plan limiting production at the yard, and it is expected to survive.

The Polish yards were all in private hands in the 1990s, but ran into trouble just after the turn of the century and ended up being renationalised in 2002 and 2003. Various governments have mismanaged them, handing out top jobs to political allies and discouraging potential buyers because ministers wanted to retain control.

The yards were overstaffed and under-invested in new technology. As well, they signed extremely unfavourable contracts that did not hedge against a possible rise in the zloty and failed to foresee the steep increase in steel prices last year, which left them producing ships at a loss.

Despite the long global shipping boom, the Polish yards were unable to make much headway, and only survived thanks to large doses of aid and export guarantees. That may not have mattered much before Poland was a member of the EU, but after it joined in 2004, much tighter rules on public aid began to apply, torpedoing the yards' chances of continuing to function as before.

Finally, the global economic crisis has slowed international trade and created a shipping glut, making conditions for marginal yards like those in Poland even more difficult.

Although they only employed 15,000 in recent years, their historical significance made them a political issue, and politicians, especially those from the right-wing Law and Justice party of the Kaczynski twins, promised to find way of allowing them to survive. Arguments about history and the fight against communism cut little ice with Neelie Kroes, the EU's competition commissioner, who ended up ruling that previous public aid had to be disgorged.

Gdynia and Szczecin are now finishing up their final shipbuilding contracts, after which they will lay off their remaining workers. They may never be rehired, as the new buyer will be chosen by price alone - what they plan to do with the site has no bearing on the outcome of the auctions. "I have no illusions, and I want to say this very clearly, that an investor will be found who wants to build ships there," Grad told parliament in September. "If someone like that is found, and obviously we will try for that, we would be very happy. But looking at the situation in the shipbuilding sector in the world, that is practically impossible."

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